Last week was tough for the man touted as the Tories’ master strategist. Will
George Osborne be able to restore his credibility?

Back in mid-March, just days before his vital Budget, George Osborne was so confident of it being a success that he took himself to America to join David Cameron at a White House dinner. A chancellor with a Budget to finalise traditionally spends the week before it cloistered with his senior officials, burning the midnight oil at his desk in the Treasury on Whitehall.

“I wasn’t surprised he went to Washington,” says one of the Chancellor’s Labour opponents, who has studied him closely. “George Osborne is such a political junkie that there was no way he would be able to resist the glamour of hanging out with Obama when he should have been concentrating on getting his Budget right.”

At the time, those who questioned the wisdom of Mr Osborne’s trip were told to calm down. Relax, it will all be perfectly fine, said the Chancellor’s supporters. Many of the biggest decisions couldn’t be taken until the last minute, after consultation with the Liberal Democrats, when Mr Osborne was back from Washington. Understand, said the Osbornites, that Coalition budgets are different from budgets in which one party is in charge.

The Chancellor’s Budget was certainly different. More than six weeks on, the Government is still struggling to clear up the mess. One wit joked last week that the next Budget should be written in pencil, so that it is easier to rub out afterwards. What was supposed to be an upbeat “package for growth” has destroyed Mr Osborne’s carefully cultivated reputation as his party’s master strategist. The Chancellor today is a diminished figure trying to figure out a way to get back on track.

Coupled with events at the Leveson Inquiry and the meltdown of what is left of the reputation of the Culture Secretary, Jeremy Hunt, it has looked in recent days as though the Tory end of the Government is in the advanced stages of decay.

It was a determination to “clear the decks”, in the words of one of Mr Osborne’s aides, that lay behind a week of U-turns and dreadful headlines. These reverses were presented by the Treasury as a modest tidying-up that involved little more than £150 million of lost revenues. In truth, Mr Osborne and the Prime Minister decided that they would use the first week of the Whitsun Commons recess, with many MPs out of the country or in their constituencies, to cauterise a serious wound.

Mr Osborne decided that several of the most unpopular parts of the Budget would have to be abandoned. The so-called “pasty tax” on hot food had inspired a campaign in the South West of England, with panicked Tory MPs among those demanding a rethink. Similarly, the tax on static caravans would have to go.

But the Chancellor’s team didn’t want the U-turns to look like too big a deal. It was decided that a capable Treasury junior minister, David Gauke, would be dispatched to make the announcement in a series of television interviews. The line usually deployed by administrations in full-blown retreat – “this is a listening government” – was much in evidence.

It turned rapidly into an undignified shambles. The retreat on the pasty tax pleased the industry, but the resolution sounded so complicated (when is a pasty hot, and when is it not?) that the Government was quickly mocked.

The absence of Mr Osborne from the front line also contrasted markedly with the conduct of Kenneth Clarke. Last week, the Justice Secretary performed his own U-turn – or “adjustment”, of course – on so-called secret courts. But with his usual bluff style and panache, he handled all the media duties himself.

The cumulation of Government U-turns quickly led to speculation that there was another on the way, this time on the “charity tax”. The move to cap the tax relief available to those giving large sums to good causes angered museums, charities and philanthropists – among them major Tory donors – who complained it would reduce donations.

Mr Osborne unveiled the climbdown hurriedly, giving an interview to explain his decision as Culture Secretary Jeremy Hunt appeared at the Leveson Inquiry. But, while the Government’s proposed limit on charitable donations was dumped, a cap on other income tax reliefs enjoyed by the rich will still be introduced at an as-yet undetermined point in the future, and following consultations that will continue into the summer.

Someone else struggling to explain himself was Mr Hunt. The Culture Secretary survived his cross-examination at Leveson, but not without the further embarrassment of a litany of emails and communications showing how he quailed before the Murdochs and their advisers.

The Prime Minister is refusing to refer Mr Hunt’s case to the adviser on ministerial standards. It suggests that Mr Cameron has crossed, rather early in his premiership, into that moral twilight zone where dealing with wrongdoing matters less than the need to cling on to a minister. In this case, Mr Cameron wants Mr Hunt to stay on as a “shield”, lest an early departure focuses more adverse attention on Mr Cameron’s closeness to News International. Both Mr Osborne and the Prime Minister await the call from Lord Leveson to give evidence.

The mood among many Tory MPs, donors and party activists has turned sulphurous. A prominent peer said: “Nobody [in the House of Lords] has a good word to say about Cameron and Osborne. They are almost friendless.”

A major Tory donor last week could hardly contain his fury when the Chancellor’s name was mentioned. A subsequent mention of one of Mr Osborne’s key aides produced a four-letter-word-strewn tirade. Other donors were also appalled by the charity tax, and particularly by the crude “anti-rich” rhetoric used by a Chancellor who then expects such people to fund the party’s election campaigns. “It was unforgivable. They tried to make me sound like a criminal for giving millions to the arts and good causes,” says one big donor.

“It is clear that the Budget has killed the idea of George ever becoming Tory leader,” says a minister. “He must realise that he is finished with his colleagues,” says an MP.

But attention is also focusing on the wider problem of the way in which the Government is being run. The phrase used in The Sunday Telegraph last week about Mr Hunt’s Department of Culture, Media and Sport – “a department in a state of suspended animation” – now appears to apply to much of the rest of the Government. In particular, the set-up in which the Chancellor has two jobs – combining running the Treasury with moonlighting as the “strategic brain” at numerous meetings in Number 10 – has been found wanting. The mess of the Budget and the state of the economy suggests that the Chancellor should be concentrating on the day job.

Mr Cameron’s team is also getting weaker, as he loses key advisers. His policy guru Steve Hilton left last month to go to California, while more junior aides have also been bailing out. Sean Worth, a key expert on health and social care policy, is the latest, handing in his resignation last week to work for a think tank. Such departures by ambitious types are common when a corroded administration is coming to the end of its lifespan, not when a government is only two years old.

Can the current Tory leadership get it together, or have they lost their credibility for good? The answer probably lies in how Mr Cameron and Mr Osborne respond to the looming dénouement of the euro crisis.

If stricken Greece departs the single currency, the fear will be that other countries, such as Spain, are forced to follow in a disorderly fashion. Various European governments and large parts of the European banking system would then need vast bailouts.

The impact of that uncertainty has already hurt the British economy. But it is nothing compared to the dislocation and distress that would result from a full-blown implosion of the eurozone. In the short term, European trade would dry up and a tidal wave of foreign money would seek sanctuary in Britain, sending the pound soaring and making our exports uncompetitive.

Number 10 and the Treasury are readying themselves. The best hope the Tories have, after a torrid period that has taken the Government to depths from which it will struggle to recover, is that Mr Cameron and Mr Osborne deal calmly and inspiringly with the coming crisis. The omens, based on their recent conduct, are not propitious.